Outsourcing and Off-Shoring in a Transnational Organization
Transnational organizations value every highly the off-shoring and outsourcing strategy they employ. This is in seeking to cut production costs and maximize profits by obtaining affordable and skillful labor. Helms notes” transnational organizations, seek strategies that align them with their customers, other business partners, and suppliers to save time and capital.” Offshoring can be termed as the movement of business processes from the country of origin (mother company) to another country where the economic sense is to reduce costs, while outsourcing can be described as contracting external service providers to provide certain business functions. These two business strategies have both advantages and disadvantages.
Some of the advantages that come with outsourcing are such as the companies involved each get maximum returns on profits, access to operational expertise that is time-consuming and not available in-house, cost-saving, quality improvement, focus on their core business function, etc. Despite these positives, outsourcing experiences a number of implications such as high staff turnover, risk of low-quality products as an organization have no control of actual production process, negative productivity on the organization, mediocre service quality.
Offshoring, on the other hand, has its own positives such as maximum profits, reduction in costs of production, emerging economies gain jobs, lower labor and employee rates, while the negatives are such as political and environmental changes may disrupt the long supply chains, intellectual property risks, less flexibility to adapt to changing market trends, developed economies lose jobs to emerging ones, different legal systems and cultures may be problematic.